| Bank segment | Bank segment Selected financial information American Savings Bank, F.S.B. Statements of Income and Comprehensive Income Data Three months ended March 31 (in thousands) 2023 2022 Interest and dividend income Interest and fees on loans $ 64,842 $ 46,005 Interest and dividends on investment securities 14,637 13,984 Total interest and dividend income 79,479 59,989 Interest expense Interest on deposit liabilities 6,837 947 Interest on other borrowings 7,721 5 Total interest expense 14,558 952 Net interest income 64,921 59,037 Provision for credit losses 1,175 (3,263) Net interest income after provision for credit losses 63,746 62,300 Noninterest income Fees from other financial services 4,679 5,587 Fee income on deposit liabilities 4,599 4,691 Fee income on other financial products 2,744 2,718 Bank-owned life insurance 1,425 681 Mortgage banking income 130 1,077 Gain on sale of real estate — 1,002 Other income, net 801 372 Total noninterest income 14,378 16,128 Noninterest expense Compensation and employee benefits 30,204 27,215 Occupancy 5,588 5,952 Data processing 5,012 4,151 Services 2,595 2,439 Equipment 2,646 2,329 Office supplies, printing and postage 1,165 1,060 Marketing 1,016 1,018 Other expense 6,191 4,049 Total noninterest expense 54,417 48,213 Income before income taxes 23,707 30,215 Income taxes 5,145 6,345 Net income 18,562 23,870 Other comprehensive income (loss), net of taxes 18,430 (122,441) Comprehensive income (loss) $ 36,992 $ (98,571) Reconciliation to amounts per HEI Condensed Consolidated Statements of Income*: Three months ended March 31 (in thousands) 2023 2022 Interest and dividend income $ 79,479 $ 59,989 Noninterest income 14,378 16,128 Less: Gain on sale of real estate — 1,002 *Revenues-Bank 93,857 75,115 Total interest expense 14,558 952 Provision for credit losses 1,175 (3,263) Noninterest expense 54,417 48,213 Less: Gain on sale of real estate — 1,002 Less: Retirement defined benefits credit—other than service costs (187) (185) *Expenses-Bank 70,337 45,085 *Operating income-Bank 23,520 30,030 Add back: Retirement defined benefits credit—other than service costs (187) (185) Income before income taxes $ 23,707 $ 30,215 American Savings Bank, F.S.B. Balance Sheets Data (in thousands) March 31, 2023 December 31, 2022 Assets Cash and due from banks $ 138,742 $ 153,042 Interest-bearing deposits 44,315 3,107 Cash and cash equivalents 183,057 156,149 Investment securities Available-for-sale, at fair value 1,419,755 1,429,667 Held-to-maturity, at amortized cost (fair value of $1,158,090 and $1,150,971, respectively) 1,238,185 1,251,747 Stock in Federal Home Loan Bank, at cost 10,000 26,560 Loans held for investment 6,059,354 5,978,906 Allowance for credit losses (71,296) (72,216) Net loans 5,988,058 5,906,690 Loans held for sale, at lower of cost or fair value 660 824 Other 688,165 692,143 Goodwill 82,190 82,190 Total assets $ 9,610,070 $ 9,545,970 Liabilities and shareholder’s equity Deposit liabilities—noninterest-bearing $ 2,769,789 $ 2,811,077 Deposit liabilities—interest-bearing 5,460,812 5,358,619 Other borrowings 680,690 695,120 Other 206,317 212,269 Total liabilities 9,117,608 9,077,085 Common stock 1 1 Additional paid-in capital 356,391 355,806 Retained earnings 454,255 449,693 Accumulated other comprehensive loss, net of tax benefits Net unrealized losses on securities $ (308,622) $ (328,904) Retirement benefit plans (9,563) (318,185) (7,711) (336,615) Total shareholder’s equity 492,462 468,885 Total liabilities and shareholder’s equity $ 9,610,070 $ 9,545,970 Other assets Bank-owned life insurance $ 183,936 $ 182,986 Premises and equipment, net 192,789 195,324 Accrued interest receivable 26,547 25,077 Mortgage-servicing rights 8,745 9,047 Low-income housing investments 110,748 106,978 Real estate held for sale 100 — Deferred tax asset 109,885 116,441 Real estate acquired in settlement of loans, net 614 115 Other 54,801 56,175 $ 688,165 $ 692,143 Other liabilities Accrued expenses $ 95,066 $ 97,295 Federal and state income taxes payable 2,614 863 Cashier’s checks 34,616 36,401 Advance payments by borrowers 5,466 9,637 Other 68,555 68,073 $ 206,317 $ 212,269 Bank-owned life insurance is life insurance purchased by ASB on the lives of certain key employees, with ASB as the beneficiary. The insurance is used to fund employee benefits through tax-free income from increases in the cash value of the policies and insurance proceeds paid to ASB upon an insured’s death. Other borrowings consisted of FHLB advances, borrowings from the Federal Reserve Bank and securities sold under agreements to repurchase. Investment securities. The major components of investment securities were as follows: Amortized cost Gross unrealized gains Gross unrealized losses Estimated fair Gross unrealized losses Less than 12 months 12 months or longer (dollars in thousands) Number of issues Fair Amount Number of issues Fair Amount March 31, 2023 Available-for-sale U.S. Treasury and federal agency obligations $ 85,786 $ — $ (6,042) $ 79,744 — $ — $ — 14 $ 79,744 $ (6,042) Mortgage-backed securities* 1,500,717 1 (216,783) 1,283,935 24 89,727 (7,367) 158 1,193,633 (209,416) Corporate bonds 44,341 — (3,031) 41,310 2 8,951 (50) 3 32,359 (2,981) Mortgage revenue bonds 14,766 — — 14,766 — — — — — — $ 1,645,610 $ 1 $ (225,856) $ 1,419,755 26 $ 98,678 $ (7,417) 175 $ 1,305,736 $ (218,439) Held-to-maturity U.S. Treasury and federal agency obligations $ 59,900 $ — $ (7,172) $ 52,728 — $ — $ — 3 $ 52,728 $ (7,172) Mortgage-backed securities* 1,178,285 8,875 (81,798) 1,105,362 6 64,288 (532) 41 427,520 (81,266) $ 1,238,185 $ 8,875 $ (88,970) $ 1,158,090 6 $ 64,288 $ (532) 44 $ 480,248 $ (88,438) December 31, 2022 Available-for-sale U.S. Treasury and federal agency obligations $ 88,344 $ — $ (7,281) $ 81,063 12 $ 41,201 $ (2,120) 4 $ 39,862 $ (5,161) Mortgage-backed securities* 1,530,582 — (237,614) 1,292,968 113 455,836 (56,999) 70 837,132 (180,615) Corporate bonds 44,377 — (3,643) 40,734 4 29,644 (2,028) 1 11,090 (1,615) Mortgage revenue bonds 14,902 — — 14,902 — — — — — — $ 1,678,205 $ — $ (248,538) $ 1,429,667 129 $ 526,681 $ (61,147) 75 $ 888,084 $ (187,391) Held-to-maturity U.S. Treasury and federal agency obligations $ 59,894 $ — $ (8,478) $ 51,416 1 $ 16,874 $ (3,222) 2 $ 34,542 $ (5,256) Mortgage-backed securities* 1,191,853 2,670 (94,968) 1,099,555 22 183,629 (10,593) 51 567,250 (84,375) $ 1,251,747 $ 2,670 $ (103,446) $ 1,150,971 23 $ 200,503 $ (13,815) 53 $ 601,792 $ (89,631) * Issued or guaranteed by U.S. Government agencies or sponsored agencies ASB does not believe that the investment securities that were in an unrealized loss position at March 31, 2023 and December 31, 2022, represent a credit loss. Total gross unrealized losses were primarily attributable to change in market conditions. On a quarterly basis the investment securities are evaluated for changes in financial condition of the issuer. Based upon ASB’s evaluation, all securities held within the investment portfolio continue to be rated investment grade by one or more agencies. The contractual cash flows of the U.S. Treasury, federal agency obligations and agency mortgage-backed securities are backed by the full faith and credit guaranty of the United States government or an agency of the government. ASB does not intend to sell the securities before the recovery of its amortized cost basis and there have been no adverse changes in the timing of the contractual cash flows for the securities. ASB’s investment securities portfolio did not require an allowance for credit losses at March 31, 2023 and December 31, 2022. U.S. Treasury, federal agency obligations, corporate bonds, and mortgage revenue bonds have contractual terms to maturity. Mortgage-backed securities have contractual terms to maturity, but require periodic payments to reduce principal. In addition, expected maturities will differ from contractual maturities because borrowers have the right to prepay the underlying mortgages. The contractual maturities of investment securities were as follows: March 31, 2023 Amortized Fair value (in thousands) Available-for-sale Due in one year or less $ 2,579 $ 2,531 Due after one year through five years 127,548 118,523 Due after five years through ten years 14,766 14,766 Due after ten years — — 144,893 135,820 Mortgage-backed securities — issued or guaranteed by U.S. Government agencies or sponsored agencies 1,500,717 1,283,935 Total available-for-sale securities $ 1,645,610 $ 1,419,755 Held-to-maturity Due in one year or less $ — $ — Due after one year through five years — — Due after five years through ten years 59,900 52,728 Due after ten years — — 59,900 52,728 Mortgage-backed securities — issued or guaranteed by U.S. Government agencies or sponsored agencies 1,178,285 1,105,362 Total held-to-maturity securities $ 1,238,185 $ 1,158,090 There were no sales of available-for-sale securities for the quarters ended March 31, 2023 and 2022. The components of loans were summarized as follows: March 31, 2023 December 31, 2022 (in thousands) Real estate: Residential 1-4 family $ 2,484,316 $ 2,479,637 Commercial real estate 1,377,184 1,358,123 Home equity line of credit 1,022,800 1,002,905 Residential land 20,061 20,679 Commercial construction 94,267 88,489 Residential construction 15,749 20,788 Total real estate 5,014,377 4,970,621 Commercial 800,949 779,691 Consumer 272,401 254,709 Total loans 6,087,727 6,005,021 Less: Deferred fees and discounts (28,373) (26,115) Allowance for credit losses (71,296) (72,216) Total loans, net $ 5,988,058 $ 5,906,690 ASB's policy is to require private mortgage insurance on all real estate loans when the loan-to-value ratio of the property exceeds 80% of the lower of the appraised value or purchase price at origination. For non-owner occupied residential property purchases, the loan-to-value ratio may not exceed 75% of the lower of the appraised value or purchase price at origination. Allowance for credit losses. The allowance for credit losses (balances and changes) by portfolio segment were as follows: (in thousands) Residential Commercial real Home Residential land Commercial construction Residential construction Commercial loans Consumer loans Total Three months ended March 31, 2023 Allowance for credit losses: Beginning balance $ 6,270 $ 21,898 $ 6,125 $ 717 $ 1,195 $ 46 $ 12,426 $ 23,539 $ 72,216 Charge-offs (809) — (63) — — — (227) (2,323) (3,422) Recoveries 4 — 17 — — — 398 908 1,327 Provision (853) 803 (26) (97) (460) (18) (661) 2,487 1,175 Ending balance $ 4,612 $ 22,701 $ 6,053 $ 620 $ 735 $ 28 $ 11,936 $ 24,611 $ 71,296 Three months ended March 31, 2022 Allowance for credit losses: Beginning balance $ 6,545 $ 24,696 $ 5,657 $ 646 $ 2,186 $ 18 $ 15,798 $ 15,584 $ 71,130 Charge-offs — — — — — — (76) (1,482) (1,558) Recoveries 8 — 11 5 — — 353 1,025 1,402 Provision 1,321 (4,520) (18) 46 154 13 (1,761) 1,002 (3,763) Ending balance $ 7,874 $ 20,176 $ 5,650 $ 697 $ 2,340 $ 31 $ 14,314 $ 16,129 $ 67,211 Allowance for loan commitments. The allowance for loan commitments by portfolio segment were as follows: (in thousands) Home equity Commercial construction Commercial loans Total Three months ended March 31, 2023 Allowance for loan commitments: Beginning balance $ 400 $ 2,600 $ 1,400 $ 4,400 Provision — — — — Ending balance $ 400 $ 2,600 $ 1,400 $ 4,400 Three months ended March 31, 2022 Allowance for loan commitments: Beginning balance $ 400 $ 3,700 $ 800 $ 4,900 Provision — (100) 600 500 Ending balance $ 400 $ 3,600 $ 1,400 $ 5,400 Credit quality . ASB performs an internal loan review and grading on an ongoing basis. The review provides management with periodic information as to the quality of the loan portfolio and effectiveness of its lending policies and procedures. The objectives of the loan review and grading procedures are to identify, in a timely manner, existing or emerging credit trends so that appropriate steps can be initiated to manage risk and avoid or minimize future losses. Loans subject to grading include commercial, commercial real estate and commercial construction loans. Each commercial and commercial real estate loan is assigned an Asset Quality Rating (AQR) reflecting the likelihood of repayment or orderly liquidation of that loan transaction pursuant to regulatory credit classifications: Pass, Special Mention, Substandard, Doubtful, and Loss. The AQR is a function of the probability of default model rating, the loss given default, and possible non-model factors which impact the ultimate collectability of the loan such as character of the business owner/guarantor, interim period performance, litigation, tax liens and major changes in business and economic conditions. Pass exposures generally are well protected by the current net worth and paying capacity of the obligor or by the value of the asset or underlying collateral. Special Mention loans have potential weaknesses that, if left uncorrected, could jeopardize the liquidation of the debt. Substandard loans have well-defined weaknesses that jeopardize the liquidation of the debt and are characterized by the distinct possibility that ASB may sustain some loss. An asset classified Doubtful has the weaknesses of those classified Substandard, with the added characteristic that the weaknesses make collection or liquidation in full, on the basis of currently existing facts, conditions, and values, highly questionable and improbable. An asset classified Loss is considered uncollectible and has such little value that its continuance as a bankable asset is not warranted. The credit risk profile by vintage date based on payment activity or internally assigned grade for loans was as follows: Term Loans by Origination Year Revolving Loans (in thousands) 2023 2022 2021 2020 2019 Prior Revolving Converted to term loans Total March 31, 2023 Residential 1-4 family Current $ 46,292 $ 425,843 $ 750,578 $ 418,780 $ 110,618 $ 727,411 $ — $ — $ 2,479,522 30-59 days past due — — — — 938 971 — — 1,909 60-89 days past due — — — — — 930 — — 930 Greater than 89 days past due — — — 267 — 1,688 — — 1,955 46,292 425,843 750,578 419,047 111,556 731,000 — — 2,484,316 Current YTD period Gross charge-offs — — — — — 809 — — 809 Home equity line of credit Current — — — — — — 973,686 46,565 1,020,251 30-59 days past due — — — — — — 781 115 896 60-89 days past due — — — — — — 346 337 683 Greater than 89 days past due — — — — — — 573 397 970 — — — — — — 975,386 47,414 1,022,800 Current YTD period Gross charge-offs — — — — — — — 63 63 Residential land Current 1,204 5,237 8,587 4,039 — 994 — — 20,061 30-59 days past due — — — — — — — — — 60-89 days past due — — — — — — — — — Greater than 89 days past due — — — — — — — — — 1,204 5,237 8,587 4,039 — 994 — — 20,061 Current YTD period Gross charge-offs — — — — — — — — — Residential construction Current 1,444 6,786 7,519 — — — — — 15,749 30-59 days past due — — — — — — — — — 60-89 days past due — — — — — — — — — Greater than 89 days past due — — — — — — — — — 1,444 6,786 7,519 — — — — — 15,749 Current YTD period Gross charge-offs — — — — — — — — — Consumer Current 36,794 189,133 18,047 4,233 4,301 341 9,589 4,904 267,342 30-59 days past due 203 1,628 235 54 170 11 78 120 2,499 60-89 days past due — 899 116 59 129 4 16 117 1,340 Greater than 89 days past due — 502 199 59 105 26 82 247 1,220 36,997 192,162 18,597 4,405 4,705 382 9,765 5,388 272,401 Current YTD period Gross charge-offs 189 1,523 319 57 135 21 15 64 2,323 Commercial real estate Pass 41,312 392,018 174,655 276,754 52,121 339,660 8,235 — 1,284,755 Special Mention — — 11,250 3,425 30,179 21,307 — — 66,161 Substandard 5,433 — — 659 11,356 8,820 — — 26,268 Doubtful — — — — — — — — — 46,745 392,018 185,905 280,838 93,656 369,787 8,235 — 1,377,184 Term Loans by Origination Year Revolving Loans (in thousands) 2023 2022 2021 2020 2019 Prior Revolving Converted to term loans Total Current YTD period Gross charge-offs — — — — — — — — — Commercial construction Pass — 11,206 54,924 44 — — 28,093 — 94,267 Special Mention — — — — — — — — — Substandard — — — — — — — — — Doubtful — — — — — — — — — — 11,206 54,924 44 — — 28,093 — 94,267 Current YTD period Gross charge-offs — — — — — — — — — Commercial Pass 30,142 238,671 184,551 86,275 60,265 97,277 66,200 12,918 776,299 Special Mention — — — — 2,255 — 8,492 6 10,753 Substandard — 3,234 1,507 398 1,320 5,195 899 1,344 13,897 Doubtful — — — — — — — — — 30,142 241,905 186,058 86,673 63,840 102,472 75,591 14,268 800,949 Current YTD period Gross charge-offs — — 51 — — — 14 162 227 Total loans $ 162,824 $ 1,275,157 $ 1,212,168 $ 795,046 $ 273,757 $ 1,204,635 $ 1,097,070 $ 67,070 $ 6,087,727 Term Loans by Origination Year Revolving Loans (in thousands) 2022 2021 2020 2019 2018 Prior Revolving Converted to term loans Total December 31, 2022 Residential 1-4 family Current $ 432,707 $ 755,056 $ 423,455 $ 113,096 $ 51,860 $ 698,354 $ — $ — $ 2,474,528 30-59 days past due — — — — 448 1,098 — — 1,546 60-89 days past due — — 268 — — 90 — — 358 Greater than 89 days past due — — — — 809 2,396 — — 3,205 432,707 755,056 423,723 113,096 53,117 701,938 — — 2,479,637 Home equity line of credit Current — — — — — — 959,131 40,814 999,945 30-59 days past due — — — — — — 1,103 209 1,312 60-89 days past due — — — — — — 209 226 435 Greater than 89 days past due — — — — — — 587 626 1,213 — — — — — — 961,030 41,875 1,002,905 Residential land Current 5,245 9,010 5,222 203 522 477 — — 20,679 30-59 days past due — — — — — — — — — 60-89 days past due — — — — — — — — — Greater than 89 days past due — — — — — — — — — 5,245 9,010 5,222 203 522 477 — — 20,679 Residential construction Current 7,986 11,624 1,178 — — — — — 20,788 30-59 days past due — — — — — — — — — 60-89 days past due — — — — — — — — — Greater than 89 days past due — — — — — — — — — 7,986 11,624 1,178 — — — — — 20,788 Consumer Current 199,574 21,330 5,543 7,580 527 140 10,810 4,782 250,286 30-59 days past due 1,110 287 65 239 30 — 81 167 1,979 60-89 days past due 756 163 88 137 19 — 45 107 1,315 Greater than 89 days past due 621 105 37 176 28 — 20 142 1,129 202,061 21,885 5,733 8,132 604 140 10,956 5,198 254,709 Commercial real estate Pass 390,206 177,130 283,321 51,542 63,084 278,280 8,235 — 1,251,798 Special Mention — 11,250 3,446 40,423 — 24,466 — — 79,585 Substandard — — 665 11,357 — 14,718 — — 26,740 Doubtful — — — — — — — — — 390,206 188,380 287,432 103,322 63,084 317,464 8,235 — 1,358,123 Commercial construction Pass 15,094 47,478 44 — — — 25,873 — 88,489 Special Mention — — — — — — — — — Substandard — — — — — — — — — Doubtful — — — — — — — — — 15,094 47,478 44 — — — 25,873 — 88,489 Commercial Pass 239,852 185,013 85,220 68,161 46,142 53,192 60,871 13,964 752,415 Special Mention — — — 2,374 — 645 9,005 8 12,032 Substandard 3,322 2,305 401 1,304 1,346 3,849 1,664 1,053 15,244 Doubtful — — — — — — — — — 243,174 187,318 85,621 71,839 47,488 57,686 71,540 15,025 779,691 Total loans $ 1,296,473 $ 1,220,751 $ 808,953 $ 296,592 $ 164,815 $ 1,077,705 $ 1,077,634 $ 62,098 $ 6,005,021 Revolving loans converted to term loans during the three months ended March 31, 2023 in the commercial, home equity line of credit and consumer portfolios were $1.2 million, $7.8 million and $1.1 million, respectively. Revolving loans converted to term loans during the three months ended March 31, 2022 in the commercial, home equity line of credit and consumer portfolios were $0.5 million, $4.4 million and $1.0 million, respectively. The credit risk profile based on payment activity for loans was as follows: (in thousands) 30-59 60-89 Total Current Total Amortized cost> March 31, 2023 Real estate: Residential 1-4 family $ 1,909 $ 930 $ 1,955 $ 4,794 $ 2,479,522 $ 2,484,316 $ — Commercial real estate — — — — 1,377,184 1,377,184 — Home equity line of credit 896 683 970 2,549 1,020,251 1,022,800 — Residential land — — — — 20,061 20,061 — Commercial construction — — — — 94,267 94,267 — Residential construction — — — — 15,749 15,749 — Commercial 263 71 427 761 800,188 800,949 — Consumer 2,499 1,340 1,220 5,059 267,342 272,401 — Total loans $ 5,567 $ 3,024 $ 4,572 $ 13,163 $ 6,074,564 $ 6,087,727 $ — December 31, 2022 Real estate: Residential 1-4 family $ 1,546 $ 358 $ 3,205 $ 5,109 $ 2,474,528 $ 2,479,637 $ — Commercial real estate 508 217 — 725 1,357,398 1,358,123 — Home equity line of credit 1,312 435 1,213 2,960 999,945 1,002,905 — Residential land — — — — 20,679 20,679 — Commercial construction — — — — 88,489 88,489 — Residential construction — — — — 20,788 20,788 — Commercial 614 18 77 709 778,982 779,691 — Consumer 1,979 1,315 1,129 4,423 250,286 254,709 — Total loans $ 5,959 $ 2,343 $ 5,624 $ 13,926 $ 5,991,095 $ 6,005,021 $ — The credit risk profile based on nonaccrual loans were as follows: (in thousands) March 31, 2023 December 31, 2022 With a Related ACL Without a Related ACL Total With a Related ACL Without a Related ACL Total Real estate: Residential 1-4 family $ 3,371 $ 2,117 $ 5,488 $ 4,198 $ 2,981 $ 7,179 Commercial real estate — — — — — — Home equity line of credit 4,014 1,237 5,251 3,654 1,442 5,096 Residential land 109 — 109 420 — 420 Commercial construction — — — — — — Residential construction — — — — — — Commercial 1,744 — 1,744 2,183 — 2,183 Consumer 1,895 — 1,895 1,588 — 1,588 Total $ 11,133 $ 3,354 $ 14,487 $ 12,043 $ 4,423 $ 16,466 ASB did not recognize interest on nonaccrual loans for the three months ended March 31, 2023 and 2022. Modifications Made to Borrowers Experiencing Financial Difficulty. The allowance for credit losses incorporates an estimate of lifetime expected credit losses and is recorded on each asset upon origination. The starting point for the estimate of the allowance for credit losses is historical loan information, which includes losses from modifications of receivables to borrowers experiencing financial difficulty. ASB uses a probability of default/loss given default model to determine the allowance for credit losses. An assessment of whether a borrower is experiencing financial difficulty is made at the time of the modification. Because the effect of most modifications made to borrowers experiencing financial difficulty is already included in the allowance for credit losses, a change to the allowance for credit losses is generally not recorded upon modification. Modifications may include interest rate reductions, interest only payments for an extended period of time, protracted terms such as amortization and maturity beyond the customary length of time found in the normal marketplace, and other actions intended to minimize economic loss and to provide alternatives to foreclosure or repossession of collateral. During the first three months of 2023, no loans received a material modification based on borrower financial difficulty. Troubled debt restructurings. Prior to January 1, 2023, a loan modification was deemed to be a TDR when the borrower is determined to be experiencing financial difficulties and ASB grants a concession it would not otherwise consider. With the adoption of ASU No. 2022-02, accounting guidance for TDRs by creditors is eliminated. Loan refinancing and restructuring guidance is applied to determine whether a modification results in a new loan or a continuation of an existing loan. ASB will continue TDR disclosures for years prior to the adoption of ASU No. 2022-02. The credit risk profile based on loans whose terms have been modified and accruing interest were as follows: (in thousands) December 31, 2022 Real estate: Residential 1-4 family $ 8,821 Commercial real estate 9,477 Home equity line of credit 4,404 Residential land 782 Commercial construction — Residential construction — Commercial 6,596 Consumer 50 Total troubled debt restructured loans accruing interest $ 30,130 Loans modified as a TDR. There were no loan modifications that occurred during the three months ended March 31, 2022. There were no loans modified in TDRs that experienced a payment default of 90 days or more during the first three months of 2022. If a loan modified in a TDR subsequently defaults, ASB evaluates the loan for further impairment. Based on its evaluation, adjustments may be made in the allocation of the allowance or partial charge-offs may be taken to further write-down the carrying value of the loan. Commitments to lend additional funds to borrowers whose loan terms have been modified in a TDR totaled nil at December 31, 2022. Collateral-dependent loans. A loan is considered collateral-dependent when the borrower is experiencing financial difficulty and repayment of the loan is expected to be provided substantially through the operation or sale of the collateral. Loans considered collateral-dependent were as follows: Amortized cost (in thousands) March 31, 2023 December 31, 2022 Collateral type Real estate: Residential 1-4 family $ 2,353 $ 3,959 Residential real estate property Home equity line of credit 1,237 1,425 Residential real estate property Total $ 3,590 $ 5,384 ASB had $3.4 million and $4.2 million of consumer mortgage loans collateralized by residential real estate property that were in the process of foreclosure at March 31, 2023 and December 31, 2022, respectively. Mortgage servicing rights (MSRs) . In its mortgage banking business, ASB sells residential mortgage loans to government-sponsored entities and other parties, who may issue securities backed by pools of such loans. ASB retains no beneficial interests in these loans other than the servicing rights of certain loans sold. ASB received proceeds from the sale of residential mortgages of $5.7 million and $75.6 million for the three months ended March 31, 2023 and 2022, respectively, and recognized gains on such sales of $0.1 million and $1.1 million for the three months ended March 31, 2023 and 2022, respectively. There were no repurchased mortgage loans for the three months ended March 31, 2023 and 2022. Mortgage servicing fees, a component of other income, net, were $0.9 million for the three months ended March 31, 2023 and 2022. Changes in the carrying value of MSRs were as follows: (in thousands) Gross Accumulated amortization Valuation allowance Net March 31, 2023 $ 17,868 $ (9,123) $ — $ 8,745 December 31, 2022 19,544 (10,497) — 9,047 Changes related to MSRs were as follows: Three months ended March 31 (in thousands) 2023 2022 Mortgage servicing rights Beginning balance $ 9,047 $ 9,950 Amount capitalized 51 719 Amortization (353) (645) Other-than-temporary impairment — — Carrying amount before valuation allowance 8,745 10,024 Valuation allowance for mortgage servicing rights Beginning balance — — Provision — — Other-than-temporary impairment — — Ending balance — — Net carrying value of mortgage servicing rights $ 8,745 $ 10,024 ASB capitalizes MSRs acquired upon the sale of mortgage loans with servicing rights retained. On a monthly basis, ASB compares the net carrying value of the MSRs to its fair value to determine if there are any changes to the valuation allowance and/or other-than-temporary impairment for the MSRs. ASB uses a present value cash flow model to estimate the fair value of MSRs. Impairment is recognized through a valuation allowance for each stratum when the carrying amount exceeds fair value, with any associated provision recorded as a component of loan servicing fees included in “Revenues - bank” in the condensed consolidated statements of income. A direct write-down is recorded when the recoverability of the valuation allowance is deemed to be unrecoverable. Key assumptions used in estimating the fair value of ASB’s MSRs used in the impairment analysis were as follows: (dollars in thousands) March 31, 2023 December 31, 2022 Unpaid principal balance $ 1,431,037 $ 1,451,322 Weighted average note rate 3.39 % 3.38 % Weighted average discount rate 10.00 % 10.00 % Weighted average prepayment speed 6.39 % 6.56 % The sensitivity analysis of fair value of MSRs to hypothetical adverse changes of 25 and 50 basis points in certain key assumptions was as follows: (dollars in thousands) March 31, 2023 December 31, 2022 Prepayment rate: 25 basis points adverse rate change $ (109) $ (92) 50 basis points adverse rate change (243) (214) Discount rate: 25 basis points adverse rate change (190) (182) 50 basis points adverse rate change (376) (361) The effect of a variation in certain assumptions on fair value is calculated without changing any other assumptions. This analysis typically cannot be extrapolated because the relationship of a change in one key assumption to the changes in the fair value of MSRs typically is not linear. Other borrowings. As of March 31, 2023 and December 31, 2022, ASB had nil and $414.0 million of FHLB advances outstanding, respectively, and borrowings with the Federal Reserve Bank of $550.0 million and nil, respectively. As of March 31, 2023, ASB was in compliance with all FHLB Advances, Pledge and Security Agreement requirements and all requirements to borrow at the Federal Reserve Discount Window Primary Credit Facility under 12 CFR 201.4(a) guidelines. Securities sold under agreements to repurchase are accounted for as financing transactions and the obligations to repurchase these securities are recorded as liabilities in the condensed consolidated balance sheets. ASB pledges investment securities as collateral for securities sold under agreements to repurchase. All such agreements are subject to master netting arrangements, which provide for a conditional right of set-off in case of default by either party; however, ASB presents securities sold under agreements to repurchase on a gross basis in the balance sheet. The following tables present information about the securities sold under agreements to repurchase, including the related collateral received from or pledged to counterparties: (in millions) Gross amount Gross amount Net amount of Repurchase agreements March 31, 2023 $ 131 $ — $ 131 December 31, 2022 281 — 281 Gross amount not offset in the Balance Sheets (in millions) Net amount of liabilities presented Financial Cash Commercial account holders March 31, 2023 $ 131 $ 172 $ — December 31, 2022 281 327 — The securities underlying the agreements to repurchase are book-entry securities and were delivered by appropriate entry into the counterparties’ accounts or into segregated tri-party custodial accounts at the FHLB. The securities underlying the agreements to repurchase continue to be reflected in ASB’s asset accounts. Derivative financial instruments. ASB enters into interest rate lock commitments (IRLCs) with borrowers, and forward commitments to sell loans or to-be-announced mortgage-backed securities to investors to hedge against the inherent interest rate and pricing risks associated with selling loans. ASB enters into IRLCs for residential mortgage loans, which commit ASB to lend funds to a potential borrower at a specific interest rate and within a specified period of time. IRLCs that relate to the origination of mortgage loans that will be held for sale are considered derivative financial instruments under applicable accounting guidance. Outstanding IRLCs expose ASB to the risk that the price of the mortgage loans underlying the commitments may decline due to increases in mortgage interest rates from inception of the rate lock to the funding of the loan. The IRLCs are free-standing derivatives which are carried at fair value with changes recorded in mortgage banking income. ASB enters into forward commitments to hedge the interest rate risk for rate locked mortgage applications in process and closed mortgage loans held for sale. These commitments are primarily forward sales of to-be-announced mortgage backed securities. Generally, when mortgage loans are closed, the forward commitment is liquidated and replaced with a mandatory delivery forward sale of the mortgage to a secondary market investor. In some cases, a best-efforts forward sale agreement is utilized as the forward commitment. These commitments are free-standing derivatives which are carried at fair value with changes recorded in mortgage banking income. Changes in the fair value of IRLCs and forward commitments subsequent to inception are based on changes in the fair value of the underlying loan resulting from the fulfillment of the commitment and changes in the probability that the loan will fund within the terms of the commitment, which is affected primarily by changes in interest rates and the passage of time. The notional amount and fair value of ASB’s derivative financial instruments were as follows: March 31, 2023 December 31, 2022 (in thousands) Notional amount Fair value Notional amount Fair value Interest rate lock commitments $ 2,467 $ 26 $ 1,720 $ 9 Forward commitments 2,250 5 1,500 18 ASB’s derivative financial instruments, th |
